Despite national trend, LI banks keep lending money

At a time when credit was hardest to find, Long Island's small and mid-size banks bucked the trend and lent more money while lending nationwide shrank, a Newsday analysis shows.

Through the first nine months of 2009, the period that most experts believe was the worst of the recession, banks across the country made $227 billion less in commercial loans than in the same period in 2008, a decline of 15.1 percent, according to the Federal Deposit Insurance Corp.

But banks based on Long Island performed quite differently. Commercial and industrial loans, the source of many small- business loans, were up $71.9 million, or almost 6 percent.

Overall lending, including consumer loans, showed a similar disparity. Nationally, it declined by $639 billion, or 8.2 percent, while on Long Island it was up by $2.4 billion, a 5.1-percent increase.

Local bankers say their performance largely reflects the region's economy - although some worry it could still sag further - and their own practice of avoiding speculative lending in favor of focusing on existing businesses.

"It's not sexy," said Stuart Lubow, chairman, president and chief executive of Great Neck-based Community National Bank. "It's not exciting, but it's nuts-and-bolts businesses."

As the economy tries to rouse itself, the availability of credit to businesses is important. It's what allows some businesses to expand, whether it's by hiring more people, adding more space or buying more stock. Many businesses can't grow if they can't borrow.

And it's important to banks, too. Business lending makes up about a quarter of local banks' business, and that percentage is even higher nationally.

Some businesses can't borrow simply because banks are less willing to make loans to marginal customers - and because regulators are applying pressure to keep it that way.

"In commercial lending, we expect banks to provide documented analysis of repayment capacity and collateral support, in addition to the borrower's ability to make timely payments," FDIC chairwoman Sheila Bair said in a speech last month. "We do not want banks to compromise pricing, covenants or other terms to meet loan production goals."

In the midst of that atmosphere, banks also are dealing with prior bad loans and setting aside more money to protect against future losses. Every dollar they set aside for that is a dollar they can't lend.

"They had to pull back on lending," said Douglas Shaw, senior vice president of Suffolk County National Bank in Riverhead. "You need to back up your operation with a certain amount of capital."

Others agreed.

"Certainly, that's going to have an effect on our underwriting standards," Bank of America spokesman T.J. Crawford said of rising bad loans. "We've seen a deterioration in small businesses' ability to pay us back."

Still, he noted that lending by Bank of America, based in Charlotte, N.C., and the bank with the most assets in the nation, is up overall, and the bank remains committed to lending to small businesses that qualify. 

Fewer bad loans in past
On Long Island, local banks didn't have to reduce their lending, in part because they made fewer bad and speculative loans than banks in other parts of the country. And a half dozen newer banks were fresh sources of credit. "We weren't involved in the bubble economy," Lubow said.

Some regional banks have reduced construction and land development loans. That's partially because there isn't much construction taking place in a severe recession, but some bankers say it's a risky type of loan to make.

Construction is "very sensitive to economic cycles," said Michael Vittorio, president and chief executive of First National Bank of Long Island, based in Glen Head. If they're not solid projects, they're vulnerable to cash-flow problems, he said. Banks elsewhere got into trouble making speculative loans to developers who did not have buyers or tenants in place.

Another factor that enables regional banks to lend is that they have more creditworthy customers, bankers say.

"We make loans because our customers still qualify," said Douglas Manditch, chairman and chief executive of Empire National Bank, based in Hauppauge. The availability of credit from Long Island banks says more about the market than the banks serving it, he said.

"It's not any different here than Wisconsin or Nebraska or North Dakota," Manditch said. "All banks want to make loans."

Easier to lend on Long Island
Not only is the market different here, so far the economy has been, too - and that's another factor. Even with unemployment up to 7 percent on Long Island, that's still much less than the national rate of 10 percent. That and the lack of speculative construction has resulted in a healthier market, making it easier to lend.

As a result, said Bethpage Federal Credit Union president and chief executive Kirk Kordeleski, "banks and credit unions that made it through this cycle will be able to continue to lend."

Some, however, caution that Long Island hasn't necessarily dodged the worst - it's just going to catch it later.

Vittorio noted that unemployment is creeping up. Manditch said the high rate of foreclosures on Long Island is "scary."

Things will worsen, and there will be fewer qualified borrowers, said Joseph Ficalora, chairman, president and chief executive of Westbury-based New York Community Bank, the largest locally based bank. "We are in a protracted period of depreciation," and small improvements in the economy don't change that, he said. "I'm going to suggest there is more risk on the horizon than reward in regards to real estate."

If that risk becomes reality, credit will shrink here, too, he and others said.

"A certain degree of humility in this business is always appropriate," Vittorio said. "We're not better than anyone else. Things can change rapidly." 

Applying for a loan? Make friends with your banker
The one thing it seems small businesses need to get a loan from a bank -- more than a good credit history, even -- is an existing relationship with a banker. Not only do bankers say they're willing to lend to struggling businesses if they know enough about their ability to repay the loan, but a sampling of small businesses' experiences shows the same thing.

Three Long Island banking stories

Owner.  Ben Youdim
Business. Men's clothing
Sought.  $50,000
Youdim got a line of credit last year from Citibank to help him move his high-end men's clothing store, Beltrami Ltd., from Great Neck to Huntington. He said he's sure he wouldn't have gotten the credit if he hadn't had accounts with the bank for more than a decade.

Owner. John Mangione
Business. Marketing firm
Sought. $250,000
Mangione tried and failed with three banks to get a $250,000 line of credit to expand his Johnny Sax Marketing Solutions in Ronkonkoma, even though he had an income-producing building in Deer Park to offer as collateral.

"At the end of the day, you need to be hugging and kissing your banker," said Mangione, 51. "I understand that. I preach that in my own business."

Mangione said he raised the money he needed from private investors, but he's working on establishing a relationship with a bank.

Owner. Craig Mehlsack
Business. Limo service
Sought.  To keep existing line of credit
Mehlsack for years has had a line of credit with HSBC, his regular bank, he said. Indeed, the bank offered it to him about six years ago and encouraged him to increase it a couple of years later, he said.

Mehlsack said he used it as an insurance policy for Top of the World Limo, the company he owns in Kings Park with his wife, Tammy. In recent years, he said he's used it to pay the company's insurance premiums.

"It's a personal loan to my business," he said.

But his ability to make that loan may become restricted, because he said HSBC has frozen his personal line of credit while it reviews whether he's qualified -- even though he said he's never missed a payment.

If banks are doing this to other business people, Mehlsack said it will hurt the ability of the economy to recover.